Germany 'avoids the worst' as economy holds steady

Europe's biggest economy grew by 1.9 per cent last year despite Ukraine war and energy crisis

Germany's economy was predicted to fall into recession over winter. Bloomberg
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The German economy beat gloomy predictions to hold steady in the last quarter of 2022 and grow by 1.9 per cent over the past year, officials said on Friday.

With government finances also better than feared, it is the latest hopeful sign that Germany may be staving off a worst-case winter crisis.

Ministers had reckoned on a recession this winter as the war in Ukraine, the resulting energy crisis, high inflation, labour shortages and supply chain problems put the brakes on Europe’s biggest economy.

“Despite these continued difficult conditions, the German economy generally held up well in 2022,” Ruth Brand, the president of Germany's statistics agency, told a press conference on Friday.

Economy Minister Robert Habeck said Germany had “shown what it can do”.

The annual growth means Germany’s economy is now 0.7 per cent larger than before the Covid-19 pandemic.

The retail, transport and hospitality sectors all recovered strongly after most virus restrictions were lifted last year. Exports rose by 3.6 per cent.

Over the year as a whole, “the catch-up effect after the end of lockdowns, both for consumption and production, outweighed the economic fallout from the war in Ukraine,” said ING economist Carsten Brzeski.

Germany's economy is 0.7 per cent larger than before the pandemic. AFP

Experts estimate that the economy stagnated in the fourth quarter of 2022, although that figure could be revised.

Businesses have faced a tough winter as their energy costs rise and hard-pressed customers cut back spending.

Households saw a decline in real-terms disposable income for a second year running.

“The sheer fact that the German economy avoided the worst, unfortunately, does not mean that all of the economic problems have disappeared,” Mr Brzeski said.

Still, the new data beat Mr Habeck’s autumn forecast of a recession in the fourth quarter and 1.4 per cent annual growth.

His economy ministry said on Friday that a winter recession could yet be avoided altogether.

“Through decisive action in the past year, we have made the crisis manageable,” Mr Habeck said.

Germany's gas tanks are unusually full for this time of year. Reuters

A bailout package worth up to €200 billion ($216.9 billion) is credited with trimming inflation and shoring up growth.

Inflation has dropped to 8.6 per cent after reaching double figures for the first time since German reunification.

Meanwhile, the government had to borrow €23.5 billion ($25.5 billion) less than it planned in 2022, the finance ministry said.

“The budget accounts show that we are not borrowing everything possible by hook or by crook, but only as much as necessary,” said Finance Minister Christian Lindner.

The threat of power cuts has receded as mild weather helped Germany to hold on to precious gas supplies.

As of Thursday, Germany’s gas storage tanks were a robust 91 per cent full, compared to 47 per cent this time last year.

Germany’s energy watchdog has lowered its alert level and said a winter gas shortage looks “increasingly unlikely”, although not impossible.

Experts warn that it may be harder to fill up the tanks during 2023, meaning next winter could also prove a challenge.

Chancellor Olaf Scholz is due to open a second North Sea gas terminal on Saturday, in another step towards replacing pipeline gas from Russia.

Updated: January 13, 2023, 11:39 AM